Tax Type
Corporation Income Tax
Description
Interest on underpayments and overpayments
Topic
Penalties and Interest
Date Issued
07-23-1993
July 23, 1993
Re: Corporate Income Tax
Dear***************:
This is in response to your letter of November 9, 1992, requesting the Department to abate the interest assessed against * * * (the "Taxpayer') for the taxable year April 5, 1989 through September 30, 1989.
FACTS
After requesting and receiving an extension, the Taxpayer filed a Virginia corporate income tax return for the taxable year September 25, 1988 through September 30, 1989 with an overpayment of * * * The Taxpayer requested that the entire overpayment be refunded. Upon further review, the Taxpayer amended its tax return and filed two short year returns. The first return, for the taxable year ending April 5, 1989, showed a loss and the second return, for the taxable year ending September 30, 1989, showed that the Taxpayer owed Virginia income tax.
The Department assessed interest for the late payment of income tax liability for the year ending September 30, 1989. The interest was accrued from the original due date of the return and tax, January 15, 1990. You contend that the interest should be accrued from August 1, 1990, the date the overpayment refund was issued by the Department on the full year return originally filed by the Taxpayer.
DETERMINATION
Va. Code Sec. 58.1-1833 provides that interest on an overpayment created by payments of estimated tax does not begin to accrue until 60 days after the return is filed, and ends up to 30 days before the check is issued. In the instant case, the Taxpayer filed its return on July 13, 1990. Our records indicate that the refund was processed and ordered on July 19, 1990, and the refund check issued on August 1, 1990. Thus, pursuant to Virginia law, no interest accrued on the overpayment and none was paid.
While the statutory provisions relating to interest on over- and underpayments are based on the time value of money, that is not the only consideration. As evidenced by the 60 and 30 day periods in Va. Code 1 58.1-1833, return processing considerations are also important. Virginia's income tax system depends on the timely filing of accurate returns. For example, the ability to obtain an extension of time to file a return is conditioned upon full payment of the "tentative tax' on the original, not the extended, due date (see Va. Code § 58.1-453.C.).
Conversely, under Va. Code § 58.1-455, when the corporation income tax is not paid by the due date of the return, interest accrues from that date.
If the return filed on the extended due date shows a tax due, interest on the underpayment is accrued from the original due date along with an additional penalty in certain circumstances. On the other hand, if the return filed on the extended due date shows an overpayment the taxpayer may either credit the overpayment to the first installment of estimated tax for the following taxable year, or request a refund of the overpayment. If the overpayment is credited to estimated tax, the taxpayer effectively receives credit as of the original due date of the return and tax. If the overpayment is refunded, the taxpayer receives no interest for the extension period plus up to 90 days (see §58.1-1833).
When the Taxpayer filed its original return by the extended due date, it requested a refund of the overpayment, which the Department promptly issued together with all of the interest to which the Taxpayer was entitled (in this case, none). The amended return resulted in an underpayment on which interest was due from the original due date of the return and tax (January 15, 1990). To permit the interest on the underpayment to begin to accrue as of the date of the refund check would effectively permit interest on the refund during the extension period. Such interest is not authorized by § 58.1-1833.
Accordingly, your request for the abatement of interest is denied. You will shortly receive an updated bill with interest accrued to date which must be paid in full within 30 days to avoid additional interest and collection actions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner